Incyte May Be Undervalued Even After Rise, New CEO Says

By Meg Tirrell -
Feb 21, 2014

Incyte Corp. (INCY), the cancer-drug maker
whose shares have almost tripled since August, has unrecognized
value in its experimental medicines that may fuel more growth
than investors expect, its new chief executive officer said.

Incyte surged from about $23 as investors bought on the
potential for expansion of the company’s only approved medicine,
Jakafi for the bone marrow disorder myelofibrosis, CEO Hervé Hoppenot said in his first interview since taking the helm in
January. There’s also excitement about another experimental drug
that harnesses the immune system to fight cancer, he said.

“Around $20, the assumption was this pipeline was
worthless and Jakafi was one small drug,” Hoppenot said in a
Feb. 19 interview at the Bloomberg News office in Wilmington,
Delaware, where the company is based. “But there is more than
that.”

Jakafi generated $235.4 million in revenue for Incyte last
year. Aside from that medicine, Incyte and partner Eli Lilly &
Co. are conducting drug research in rheumatoid arthritis and
psoriasis. The company also has compounds in testing for other
kinds of cancer, Hoppenot said.

There’s value that “I’m not sure is fully integrated
here,” he said.

Hoppenot, 54, took the reins at Incyte after spending a
decade at Novartis AG (NOVN), most recently as president of its
oncology unit. Jakafi was approved by U.S. regulators in 2011 as
the first treatment for myelofibrosis. Novartis, based in Basel,
Switzerland, markets the drug outside the U.S.

Analysts’ Target

Most analysts agree with Hoppenot’s assessment that the
shares have room to rise. Of 18 analysts covering the company,
14 recommend buying, while one says hold and three sell. Their
average target price over 12 months is $70.92, according to data
compiled by Bloomberg.

Incyte gained 1.7 percent to $64.98 at the close in New
York. On Aug. 21, the stock jumped 33 percent after Incyte
announced the results of a mid-phase trial showing Jakafi had
potential for a broader use.

“We view Incyte as the premier midcap oncology company,”
Eric Schmidt, an analyst with Cowen & Co., wrote in a January
research note. We “expect shares to outperform as additional
data on JAK inhibition in solid tumors materializes,” said
Schmidt, who has an outperform rating on the stock.

The data reported in August showed Jakafi, in combination
with the chemotherapy capecitabine, helped some patients with
pancreatic cancer whose disease had spread. The company is
starting two late-stage clinical trials to learn more about the
drug’s effect and to potentially support an application for
approval. It’s also starting three mid-stage studies in other
tumor types, including breast and lung cancers, Hoppenot said.

Lilly Collaboration

Incyte is working with Indianapolis-based Lilly on
baricitinib, a medicine that, like Jakafi, aims at enzymes
called JAK. It’s in testing for rheumatoid arthritis, psoriasis
and diabetic nephropathy.

Beyond that, Incyte has additional medicines in testing for
cancer, including one aimed at a target called PI3-kinase that’s
also the focus of a drug being developed by Gilead Sciences Inc. (GILD)
Analysts estimate that Gilead’s therapy, which is awaiting
approval at the U.S. Food and Drug Administration, may draw $1
billion in revenue in 2017 for the Foster City, California-based
company.

Trial Data

Incyte expects data from a late-stage study of Jakafi in a
blood cancer called polycythemia vera early in the second
quarter.

“Our discovery team never stops,” Hoppenot said, adding
the company will have more drugs entering the clinic in the next
few months.

“We’re at a point where, finally, science is catching up
with cancer,” he said, pointing to Roche Holding AG (ROG)’s breast
cancer drug Herceptin and Novartis’s Gleevec for leukemia as
examples of the progress being made. Joining Incyte, he said, is
“like going to one of the first Internet companies when the
Internet was invented. What I see is a company entirely driven
by this idea that science can solve some of the problems of
cancer.”